* Court backs auction but finds FCC rules invalid
* Judges say would be imprudent, unfair to void auction
* Small providers complained they were disadvantaged
By Jonathan Stempel
NEW YORK, Aug 24 (Reuters) - An appeals court upheld federal government auctions of about $33 billion of wireless spectrum, saying it would be “imprudent and unfair” to undo them even though some rules governing them were invalid.
Tuesday’s ruling by the U.S. Third Circuit Court of Appeals in Philadelphia allows Verizon Wireless (VZ.N) (VOD.L), AT&T Inc (T.N), Deutsche Telekom AG’s (DTEGn.DE) T-Mobile unit and others to keep billions of dollars of licenses they had won in the auctions, which took place between 2006 and 2008.
The auction process had been challenged by Council Tree Communications Inc, Bethel Native Corp and the Minority Media and Telecommunications Council, which contended that Federal Communications Commission rules for the auctions were unfair to smaller service providers.
“We are pleased that the Third Circuit Court of Appeals upheld two important spectrum auctions,” said Ruth Milkman, chief of the FCC’s wireless telecommunications bureau, in a statement.
“The Commission remains committed to finding new and innovative ways to encourage the participation of small businesses and new entrants in our auction processes.”
Dennis Corbett, a lawyer who argued the case for the smaller service providers, did not immediately return a call seeking comment.
The FCC had offered credits to smaller providers of as much as 35 percent to help them to compete for licenses.
However, it also adopted rules to limit the ability of these providers to team up with larger rivals, or sell their credits to those rivals for quick profits.
According to the appeals court, companies that qualified for credits comprised 113 of the 205 winning bidders, but won only about 3.2 percent of the licenses’ total value.
In contrast, in auctions that preceded adoption of the rules, qualifying bidders had won about 70 percent of the licenses by dollar value, the court said.
In its 53-page ruling, the Third Circuit struck down two rules designed to limit or dissuade small carriers from selling their spectrum capacity, and upheld a third.
But it declined to overturn the auctions altogether and punish license winners it said were “innocent third parties” to the FCC’s “improper” rulemaking.
“It would involve unwinding transactions worth more than $30 billion, upsetting what are likely billions of dollars of additional investments made in reliance on the results, and seriously disrupting existing or planned wireless service for untold numbers of customers,” Circuit Judge Thomas Hardiman wrote for the court.
“Moreover, the possibility of such large-scale disruption in wireless communications would have broad negative implications for the public interest in general,” Hardiman went on. “It would be imprudent and unfair to order rescission of the auction results.”
The court reinstated the prior version of a rule it held invalid, and sent the matter to the FCC for more proceedings.
Mike Altschul, general counsel for CTIA-The Wireless Association, in a statement said the trade group was pleased with the ruling, and looked forward to working with the FCC on how best to address the rules that were thrown out.
The case is Council Tree Communications Inc et al v. Federal Communications Commission, U.S. Third Circuit Court of Appeals, No. 08-2036. (Reporting by Jonathan Stempel in New York, and Jeremy Pelofsky and John Poirier in Washington, D.C.; Editing by Phil Berlowitz)